COVID-19: The Economists’ Perspective

By Shlomo Maital

As readers know, I am an economist and have been super-critical of my fellow economists; I believe our prescriptions have done massive damage to the world, including the free-market greed-is-good credo that led to 2007/8.   But in the current pandemic, I am hearing words of wisdom from brilliant economists like Nobel Laureate Paul Krugman, a New York Times columnist.

In his latest Op-Ed, in the New York Times (April 1) Krugman brings some serious wisdom. Let me summarize what he says.

To simplify things, think of the economy as consisting of two sectors, nonessential services (N) that we can shut down to limit human interactions and hence the spread of the disease, and essential services (E) that we can’t (or perhaps don’t need to, because they don’t involve personal interaction.) We can and should close down the N sector until some combination of growing immunity, widespread testing to quickly find and isolate cases, and, if we’re very lucky, a vaccine let us return to normal life.

“For those (like me) still receiving their regular paychecks, this period of shutdown — call it the coronacoma — will be annoying but not serious. I miss coffee shops and concerts, but can live without them for however long it takes.

“Things will, however, be very different and dire for those who are deprived of their regular income while the coronacoma lasts. This group includes many workers and small businesses; it also includes state and local governments, which are required to balance their budgets but are seeing revenues collapse and expenses soar.

   “How big is the N sector? Miguel Faria-e-Castro of the St. Louis Fed summarizes estimates that are as good as any: 27 to 67 million people, [for the United States], which he averages to 47 million. That’s a lot; we could be looking at a temporary decline in real GDP of 30 percent or more. But that GDP decline isn’t the problem, since it’s a necessary counterpart of the social distancing we need to be doing. The problem instead is how to limit the hardships facing those whose normal income has been cut off.

“What can be done to help those cut off from their normal incomes during this period of national lockdown? They don’t need jobs — we don’t want them working at a time when normal work routines can spread a deadly disease. What they need, instead, is money. That is, what’s needed now is disaster relief, not economic stimulus.”

So many ‘experts’ who tell us what should be done, are sitting pretty with large bank accounts and salaries that continue to flow. Krugman’s empathy for those without income – many many millions – is exemplary. THEY are the ones we need to worry about most.

So, as I’ve written elsewhere: Save Lives, yes…and save jobs, too,  by writing checks. If needed, pay the salaries and wages of workers for businesses, to keep them afloat.   Disaster relief…as Krugman says.

Testing holds the key. Why?   Using Krugman’s terminology: Suppose we had sufficient tests, deployed rapidly, with quick results, to know if EVERY working person had COVID-19. Divide the populace into N (non-essential, or infected) and E (essential and clean). If you shut down N+E together, everyone, you lose output and jobs – you lose E times (average output or income of E), which is huge and unnecessary.   If you shut down only N, you get all the jobs and output of E, and income. And you can use it to help pay survival incomes to the N.

This makes sense, right?   And we CAN get those quick automated tests out the door if they are given priority.